The €100 billion bank bond market that terrified investors earlier this year is back

Coco bonds, the financial instruments that caused a minor panic
in the markets last month, are back, after Swiss bank UBS
finalised an $1.5 billion auction of the bonds.

The Financial Times reports that UBS has just closed the
books on the first coco bond auction since January, and the first
since worries about banks ability to pay back the bonds sent
shares tanking in mid-February.

UBS' auction was hugely oversubscribed, with the bank booking
$7.8 billion of orders for the dollar denominated bonds,
according to a person familiar with the deal, cited by the FT.
The coupon on the bonds is set at 6.875%.

Coco bonds sparked a market panic in February, after fears that
banks, including Deutsche Bank and Santander, would be unable to
make coupon payments on the debts. At the time,
the Independent wrote:

A recent move by the European Central Bank to publish an
obscure test of bank risk, known as the Srep ratio, has driven
the recent upset in the market. The results have stoked fears in
the minds of credit analysts about whether recent market shocks —
ranging from low oil prices to the slowdown in China — could
inadvertently cause banks to breach rules which would prompt
regulators to stop them paying Coco coupons.

That made fixed-income investors worry that they'd end up
holding a whole load of bank equity, something that people who
buy bonds for a living really don't want. As a result,
prices collapsed, and as the FT reports, some bonds ended up
trading at levels considered "distressed".

However, UBS is now taking advantage of a recent rally in
stocks, driven by
the announcement of ECB's latest monetary policy
decisions to kick start the market for coco debt. Given
that it has taken $7.8 billion of orders, it seems like investors
are ready to get back into the coco bond market. Various
estimates put the market at at least $100 billion.